Will China be a risk to global cereal markets in 2004/05?

Exactly one year ago in this report (Food outlook, June 2003), FAO questioned if another large reduction in China’s cereal stocks in 2004 would pose a serious risk for global food security. As new marketing seasons are soon to begin, similar concerns are gaining momentum. It could be argued that, for many internationally traded commodities, rising imports by China have been identified as the major force underlying buoyant commodity prices on world markets in recent months. World cereal prices have also risen sharply during the course of the 2003/04 season, but the surge can be attributed to several factors other than domestic developments in China, since the country has so far remained a net exporter, in defiance of continuing declines in its own supplies and rising domestic prices.

It is possible that China will eventually emerge as a major cereal importer and that cereal price developments in world markets will become more receptive to developments in that country. But, based on the FAO’s latest assessment of China’s cereal situation, there is some rationale to believe that the apparent tightening of supplies in the country may not prove so detrimental to world markets for at least a few more years. In 2000, when early signs of reductions in cereal stocks in China began to appear, FAO undertook a major review of its cereal supply and demand balances and concluded that inventories held in China were probably much larger than it had estimated before. As a result, FAO ruled out the possibility of an imminent crisis arising from the successive declines in China’s domestic cereal production.

From a statistical view point, FAO cereal balances for China portray a massive accumulation of stocks in the 1990s followed by an equally impressive de-stocking since 1999; the credibility of which depends on a welter of assumptions about China’s food and feed uses as well as on the accuracy of the official production statistics. In late 2003, FAO carried out an in-depth evaluation of China’s cereal situation and reported its main findings to the joint meeting of the Intergovernmental Groups on Grains and Rice in February 20041/. The report compared FAO’s utilization estimates with the adjusted statistics derived from national sources. One of the conclusions of this study was that FAO’s feed and stock estimates were generally too low, while its food estimates were too high, especially in recent years. These findings resulted in yet another revision of FAO’s cereal balances for China, including further adjustments to FAO estimates for both utilization and stocks2/.

Based on the latest FAO figures, current cereal stocks in China still seem adequate in spite of consecutive sharp declines since 1999. This, coupled with the recent announcements by the Chinese Government of new measures to stimulate cereal production, reduces the possibility of a sudden increase in China’s imports for the time being. In fact, China is more likely to remain a large exporter of maize and rice also in 2004/05. China’s wheat inflows from international markets are expected to rise, but still remain modest. China is therefore unlikely to emerge as a major disturbing factor for global food security, and further increases in international cereal prices in the coming season are unlikely to stem exclusively from developments in China.

2/ Two sets of cereal supply and demand balances are maintained in FAO, which are, by and large, similar: one set of balances is in the public domain as part of FAOSTAT (Food Balance Sheets); another set is used for the purpose of Global Information and Early Warning System (GIEWS) analysis. This note refers solely to the latter since cereal balances in GIEWS are based on marketing seasons and provide estimates for carryover stocks; the balances in FAOSTAT are constructed on a calendar year basis and show only changes in stocks. The revised GIEWS cereal balances for China (1980/81-2004/05) are available at http://www.fao.org/es/ESC/en/20953/22218/22245/highlight_42954en.html